Beyond an alluring acronym and an annual summit, the 7th edition of which took place this week in Russia, it would seem there is not much to bind together Brazil, China, India, Russia, India, and South Africa.
The initial four BRIC nations had in common their sheer size: they were, and still are, the four largest among emerging and developing economies. But the group became less cohesive since South Africa joined in 2010, much to the dismay of Jim O’Neil, who thought the country was too small to be included. Indeed South Africa is only the 18th largest emerging economy, and a third smaller than Nigeria (“BRINC” would make for interesting images, too).
Another defining feature of the BRICS was to be their rapid economic growth. It turns out that the five countries have fared very differently on that front, too. Between 2000 and 2014, China’s economy has grown at almost 11 percent annually, quadrupling its GDP. It is now richer than South Africa and almost as wealthy as Brazil and Russia, according to the IMF’s World Economic Outlook. The latter three countries achieved only 3-4.5 percent, well below the emerging and developing world average over that period. India has grown at 8 percent since 2000, but from a very low base and despite a big dip in 2011-2013.
As a result of lacklustre growth, the combined weight of Brazil, Russia, and South Africa in the global economy has been declining and the IMF reckons it will be just 5.9 percent in 2020 based on purchasing power parity, which aims to iron out currency market anomalies. By then, Indonesia will have overtaken Russia and Brazil to become the third largest emerging economy, after China and India. The increase in BRICS’ share from 27.1 percent in 2010 to 30.6 in 2015 was almost exclusively attributable to China, which overtook the US (in purchasing power parity terms) last year and now accounts for one sixth of the world economy.
As explained here, the disappointing performance of the BRICS (except China) and most large emerging economies in recent years can be attributed to several factors. Overall, the price of most commodities has fallen or stagnated. The outflow of capital and the phasing out of accommodating monetary policy in the United States have created further instability and worsened access to credit for emerging economies. But these factors alone do not explain the slowdown.
With the notable exception of China, the BRICS did not use the spell of high growth in the decade 2000 to implement structural reforms needed to boost competitiveness and sustain high growth rates. This is one of the key messages of the World Economic Forum’s latest Global Competitiveness Report which assesses the determinants of productivity for more than140 countries. The study reveals the deep competitiveness divide between China and the other BRICS, explaining in part their various economic fortunes.
In the 2014-2015 edition of the Global Competitiveness Index rankings, China comes 28th out of 144 economies, well ahead of Russia (53rd), South Africa (56th), Brazil (57th), and India (71st). The table below reports the performance of the BRICS in the 12 categories of the Index.
Despite the differences in performance levels, all five countries need to improve in three critical areas: (1) boosting competition, especially in strategic sectors of the economy, by removing bottlenecks and barriers to entry; (2) making labor markets more flexible and more effective at using all existing talent; and (3) improving the quality, transparency and efficiency of public institutions. This is especially true for Russia which ranks 122nd in this category of the index.
In addition, India, South Africa, and Brazil – especially worrisome given its income level –still need to consolidate the basic foundations of competitiveness: infrastructure; health, basic education; and macroeconomic stability.
Even China, which has pretty much harvested all the low-hanging fruit to boost its productivity, faces considerable challenges in improving in more complex areas that will drive its competitiveness in the future, including education, market efficiency, financial development, and innovation.
Beyond competitiveness and economics, there are stark differences in terms of culture, demographics, and political systems. Add to those the geographic distance, territorial disputes, and frequent diplomatic rows–most recently at the Summit, between China and India over the fate of a terrorist – and the BRICS look like a loose group of large, rival emerging nations. Yet, somehow, what started as an acronym has become a political institution. Despite its relative lethargy, the very fact that this club exists is in itself a cause for celebration, as trading words – even strong ones – is always better than retrenchment and isolation.
Two further positive signs are the creation of the New Development Bank, a multi-lateral development bank, and of the Asian Infrastructure Investment Bank. Launched in 2014, these are the first significant initiatives by the group. They could contribute to addressing the many infrastructure bottlenecks and other pressing developmental issues at home and elsewhere, and also contribute to a much needed sense of belonging. In addition, as a common policy agenda, facilitating trade among the BRICS would allow to leverage their respective competitive advantages and the many complementarities.
The governments of BRICS nations influence the destiny of some 40 percent of the world’s population, many of whom suffer from various forms of poverty, not necessarily income poverty. Contributing to bettering their lives is a colossal responsibility they at least share. Adopting structural reforms in the key areas identified by the Global Competitiveness Index will contribute a great deal to this objective.
In the Jura mountains in Western Switzerland, for centuries peasants have fenced off pastures with dry-stone walls without any mortar since water is scarce due to limestone porosity. These walls have withstood the region’s harsh winters and capricious summers. The BRICS, too, are holding together. Let us hope that they will prove as resilient against future storms as Jura’s walls.
Author: Thierry Geiger is Senior Economist, Global Benchmarking Network, World Economic Forum
Image: Mur de pierre sèche dans la vallée de Joux, dans le canton de Vaud (Suisse)